I believe everyone has witnessed that the reshuffle in the construction and ceramics industry has intensified significantly in the past two years. On the one hand, small and medium-sized ceramics companies have gone bankrupt one after another, and on the other hand, large ceramics companies have continued to expand through mergers and acquisitions.
According to statistics, as of November 16, when Dongpeng bid for 110 million yuan for the relevant assets of Qingyuan Juncheng Ceramics Co., Ltd., some ceramic companies had invested a total of 30 billion yuan in mergers and acquisitions and expansion in 2021 (see below for details) picture).
For the construction and ceramics industry, 30 billion yuan is definitely not a small amount. Only companies with strong capabilities have the confidence to carry out mergers and acquisitions, especially off-site mergers and acquisitions.
However, in the construction and ceramics industry where it is widely circulated that "China Ceramics looks to Guangdong, Guangdong Ceramics looks to Foshan", whenever a Guangdong ceramics company wants to acquire factories in other provinces or directly invest in building factories, most of its peers, especially terminal dealers, They don’t look at it that way. They often think that “their products are more expensive than ours, but the quality is not as good as ours”, “they will sell ceramic tiles produced in other places as Guangdong bricks and deceive consumers” and “their doing so will bring down the entire industry. level of quality".
Such a view may tell part of the truth, but it is far from the essence of the matter or the truth; the truth is much more "terrible" than this.
Why do ceramic companies want to acquire and expand? The reasons are as follows, which can be summarized as "five needs" and "one necessity".
The need to implement a total cost leadership strategy
Total cost leadership strategy, also called low-cost strategy, refers to reducing total costs through effective ways to establish an undefeated competitive advantage. This strategy requires enterprises to achieve economies of scale and strictly control production costs and indirect expenses based on the experience curve, so that the total cost of the enterprise's products can be reduced to the lowest level. The cost advantage created by relying on the total cost leadership strategy is one of the most important moats for an enterprise emphasized in Buffett's "moat theory".
Specifically speaking about the construction and ceramics industry, for example, Foshan ceramics companies can expand through mergers and acquisitions in other provinces, which can not only expand the production of enterprisesScale, if the location of the selected area is good enough, you can also obtain geographical advantages and resource advantages such as labor and raw materials, thereby saving logistics costs and production costs, and creating cost advantages through a multi-pronged approach.
It can be seen from the "Detailed List of M&A and Expansion of Some Ceramic Enterprises in 2021" mentioned above that the ceramic enterprises that have frequently made large-scale efforts in M&A and expansion since this year are ceramic enterprises with considerable scale. They occupy a leading position in the industry in terms of production capacity, are at the forefront of the industry in terms of revenue, and are also among the first-tier companies in the industry in terms of brand influence. Basically, they can be equated with what we often call the leading ceramic companies. Compared with small and medium-sized ceramic companies with much smaller scale and brand influence, leading ceramic companies have an overwhelming advantage in implementing a total cost leadership strategy.
My costs are lower than yours, much lower, and I can still make a larger profit margin by lowering my prices; your costs are much higher than mine, and if you lower your prices, your profits will be greatly reduced or even on the verge of loss; my brand influence If I am bigger than you, I sell it more expensively than you. Consumers are willing to choose me. If I sell it cheaper than you, you have no way to survive. This is the cruelest truth behind the implementation of the total cost leadership strategy by leading ceramic companies.
The need to better maintain dealer channels
As mentioned above, mergers and acquisitions and expansion by ceramic companies in other provinces can effectively reduce logistics costs. This is good for the ceramic companies themselves, and it is even more good for dealers around mergers and acquisitions or new factories. It will undoubtedly greatly reduce their logistics costs and enhance the competitiveness of their products in the market.
In addition, mergers and acquisitions and expansion in other provinces will also help ceramic companies implement the central warehouse model. Ceramic companies that have set up central warehouses can, on the one hand, reduce logistics costs, and on the other hand, they can also allow surrounding dealers to deliver goods and provide after-sales services faster than their competitors.
In short, ceramic enterprises can better maintain dealer channels by m&a and expansion in other provinces. In the construction and ceramics industry where dealer channels still dominate, this step is indispensable for ceramics companies to become bigger and stronger.
The need to sink channels
In recent years, the development of county economy, which is the basic foundation, has attracted more and more attention. As the state increases its support for county economy, new urbanization, new infrastructure, etc., the development of county economy is gradually entering a rapid stage.Lane. This has opened up a new blue ocean for the home building materials industry, including ceramic tiles, outside the Red Sea market in first- and second-tier cities.
Ceramic companies' expansion through mergers and acquisitions in other provinces, especially Foshan ceramic companies' establishment of factories in areas far away from the Pearl River Delta, will undoubtedly help promote the sinking of brand channels and seize new blue oceans. At the same time, it will also be in line with the country's development of county economies and the promotion of urbanization. process development trends.
The need to promote the brand from regional to national level
As a low-profile industry, building a brand in the construction and ceramics industry is not easy. From the perspective of those building ceramics, there are many well-known brands in the industry; but strictly speaking, there are basically no brands with national influence, and there is even less of brands that can step out of the industry and be called consumer brands.
The merger and expansion of ceramic enterprises in other provinces will help promote the brand from a regional to a national level, and provide favorable conditions for the brand to transform from an industry-recognized brand to a consumer-recognized brand.
The need to reduce business risks
Whether it is the large-scale relocation of production lines of ceramic enterprises in the Foshan production area long ago due to the "vacate the cage and replace the bird" policy, or not long ago, a large number of ceramic enterprises were shut down and eliminated due to environmental protection upgrade measures in the Zibo production area. Or is it the environmental protection that has been further intensified in the past two years, especially this year due to "dual carbon" and "dual control", that has caused ceramic enterprises to face unpredictable risks in their operations, ranging from increasing investment in environmental protection to implementing the "coal-to-gas" transformation. , realize green production, or be completely shuffled out.
Mergers and acquisitions by ceramic companies to expand in other provinces are equivalent to putting their eggs in different baskets, effectively reducing business risks; and for those ceramic companies that only set up factories in developed areas like Foshan, once the local environmental protection is upgraded, other places will Without a spare factory, the situation will undoubtedly be a disaster.
The inevitable result of capital promotion
Careful readers will definitely find that the ceramic companies involved in the above "Detailed List of M&A and Expansion of Some Ceramic Companies in 2021" are mostly listed companies or quasi-listed companies that have already launched IPO plans, and some are related to listed companies. The company is closely related to the company. As mentioned above, 30 billion yuan is definitely not a small amount in the construction and ceramics industry. This fully shows that capital has huge energy and influence in the construction and ceramics industry.
The strong entry of capital will definitely accelerate the reshuffle of the ceramics industry and increase the concentration of the ceramics industry.
After understanding the "five needs" and "one necessity", do you still think that the ceramic tiles produced by Foshan ceramic enterprises in other provinces for expansion are no longer the real "Guangdong bricks"?
On the basis of advantages such as scale, coupled with the blessing of original brand influence, the power of leading ceramic companies to reduce the dimensionality of small and medium-sized ceramic companies is beyond your imagination and unbearable...
(Author: Zhuifeng)
